Question

1. A firm paid $370,000 for a machine with a useful life of 10 years, at which point they expect to sell it for $100,000.  Assuming they use time as their allocation basis and use double-declining balance depreciation, how much depreciation will they record in Year 1?

1. How much is the depreciation?

Answer 1

We use the following steps in the calculation of depreciation expense using a Double declining method for all years-

1.To calculate depreciation rate, by- 1/useful life of the asset.

2.To multiply the beginning period book value by twice the depreciation rate to find the depreciation expense.

3.To deduct the depreciation expense from the beginning value to calculate the ending period value.

4.To repeat the above steps till the salvage value is reached.

Given-

• Cost of the asset = $370,000
• Salvage Value = $100,000
• The useful life of the asset =10 years

Normal Depreciation rate = 1/useful life X100 = (1/10) X 100 = 10%

Double-declining balance formula = 2 X Depreciation rate.

Here, it will be 2 x 10% = 20%

So they will record Depreciation in year 1= $370,000 X 20% = $74,000.

Ending period value after year 1 = $370,000-$74,000 = $296,000.

Depreciation in year 2 = $296,000 X 20% = $59,200.

Now the same process can be used to find out the depreciation of remaining years until the salvage value $100,000.

(In the question depreciation expense of the first year is being asked therefore no further calculation is being done.)

In case of any doubt please write in the comment box.

Thanks & all the best...